News

Consumer prices rose 0.2% over the month and 2.5% over the year in August, below consensus expectations of 2.6%. This is the smallest over-the-year increase since February 2021. Core CPI, which excludes more volatile energy and food prices, was unchanged at a 3.2% increase over the year and remains higher than overall CPI.

Shelter increased 0.5% over the month and 5.2% over the year in August. Shelter prices, which carry more weight in the CPI than in the PCE price index, accounted for 70% of the over-the-year increase of the all-items index. Transportation services also remain high, rising 0.9% over the month and 7.9% over the year, due to motor vehicle insurance increasing 16.5% over the year. Food prices rose just 0.1% over the month and 2.1% over the year.

Energy costs fell 0.8% over the month and 4% over the year in August, with gasoline prices down a significant 10.3% over the year. This is partly due to gasoline prices being elevated in August 2023. While energy commodity prices are down over the year, electricity prices are up 3.9%.

Although the PCE price index is the Federal Reserve’s preferred inflation gauge, this report should provide the Federal Open Market Committee with the confidence it needs to cut its interest rate target at its meeting this week. The Federal Reserve will be encouraged that price pressures continue to abate. The market is now pricing in a 25-basis-point rate cut, since persistent inflation in services and housing make a harder case for a 50-basis-point cut.